In February and March of this year, General Motors and French automaker Peugeot-Citroen shocked the auto industry by announcing an alliance, expecting their European units to consolidate plants, share platforms, and enjoy synergies overseas. It made sense, as the European market is crumbling amid austerity measures and a downright depressed economy.
Now, it’s not looking like it was such a good deal. General Motors lost hybrid and electric technology partner BMW to Toyota after getting cozy with Peugeot. And Peugeot lost partner Ford in its diesel-engine manufacturing business.
And it could be getting even worse. Peugeot is getting a government bailout from the French, which is not entirely unexpected considering that the only companies making a profit in Europe right now are the value-oriented Koreans. Peugeot is losing somewhere in the neighborhood of $200 million a month, and it plans to pare 10,000 people from its workforce. With the partnership, either GM or Peugeot would have had to cut workers, but with Germany calling many of the shots, chances were slim it would come from Opel, the German branch of GM.
That’s halted the partnership having any sort of clout until at least 2014 when investors expect Europe’s economy to start improving. Originally, Opel was the subject of discussion to be part of an independent subsidiary held between GM and Peugeot for a 5 billion euro payout, but those talks have evidently failed. While GM sprints back to worldwide profitability, its European arm is bloodletting to the tune of 1.8 billion euros annually.
What we originally expected to happen out of the deal was more European influence in our GM products, domestically. The cars would eventually share platforms and technologies with one another, after all. Perhaps, maybe even Peugeot or Renault would re-enter the U.S. market after two decades since their departure.
The announcement that their partnership is on the rocks is unsettling to say the least. GM can’t move ahead with Peugeot wrapped up in French-government redtape, and Peugeot is evaporating money with poor sales at home and its second-largest market—Iran—being blacklisted.
“GM is looking at this and saying, ‘What the heck are we doing here?’” says one anonymous insider to Reuters. Indeed.